International banks de-risk as compliance issues afflict Africa

15 Sep, 2023 - 00:09 0 Views
International banks de-risk as compliance issues afflict Africa Lawrence Nyazema

eBusiness Weekly

Nelson Gahadza

The Bankers Association of Zimbabwe (BAZ) says lack of correspondent banking is not affecting Zimbabwe alone but is an Africa-wide challenge where big international banks are de-risking because of compliance issues.

A correspondent bank, according to Investopedia, is a financial institution that provides services to another one — usually in another country — and acts as an intermediary or agent, facilitating wire transfers, conducting business transactions, accepting deposits and gathering documents on behalf of another bank.

Correspondent banks are most likely to be used by domestic banks to execute transactions that either originate or are completed in other countries.

BAZ president, Lawrence Nyazema, said a number of international banks have drastically reduced the number of banks that they clear for major currencies.

“Most banking correspondence is an Africa-wide issue where big banks are sort of de-risking because of compliance issues, to the extent that if we look at fines around compliance, they could be in billions.

“This was to reduce potential fines by regulators over issues such as money laundering and facilitating transactions for blacklisted or sanctioned entities,” he said in an interview.
He noted that most local and regional banks effect international transfers through third parties such as

FNB South Africa and Afreximbank (African Export-Import Bank), which unfortunately adds to the cost as well as turnaround time.

“We are grateful to institutions such as FNB South Africa and Afreximbank, among others, who have provided cross-border payment solutions in major currencies such as United States dollars, British pounds, South African Rands, and Euros to local banks,” he said.

Nyazema said the Afreximbank clearance corridor has been open and Zimbabwean banks have been using it for the past two years, and it is working efficiently.

He said at a continental level, emerging markets have been struggling to clear services; however, there is an arrangement between CT Bank in the United States, FNB South Africa, OFAC, World Bank and IMF to say, in as much as we talk about a global village, how global is it when emerging markets are struggling to clear their international transactions?

“So an African gateway has been created at FNB, and we are one of the pioneers of that system. It has been working efficiently and again, it is for major currencies.

“In the US, there are two banks that are clearing for Zimbabwe, which are CT Bank and Stanchart. So basically, we are all going through third parties, and more Zimbabwean banks are going to be using that platform for clearing,” he said.

Meanwhile, Nyazema said the banking sector is currently stable, having passed a period in the first quarter of this year where there was volatility, especially in the currency market.

“Not necessarily the official market, but the unofficial, where we saw exchange rates moving at high speed, which widened the gap between the official and unofficial market rates,” he said.

In the second quarter of 2023, the government came up with a number of measures to deal with inflation as the core issue around all these problems emanating from it.

Nyazema said the reason the average Zimbabwean does not want to keep Zimbabwe dollars in their account is because he or she is either thinking or aware that next month he or she will buy less than what was bought in the previous month.

“So the Government came up with a number of disinflation measures, and these have been very effective. We saw an increase in interest rates and tight liquidity management, especially for Zimbabwe dollars.

“But the masterstroke was the introduction of the wholesale auction system, where banks bid for foreign currency in their own capacities and then retail that foreign currency to their own customers,” he said.

He added that since the middle of June up until now, customers of banks with international and cross-border payments have had the opportunity to bid for foreign currency, and all demand that has been there has been cleared.

Share This:

Sponsored Links